Bangladesh is
important to world energy markets because of its large potential natural gas
reserves. Current, proved reserves are estimated to equal 11 Tcf (Oil and Gas
Journal) although there are significant uncertainties with respect to these
estimates, with some estimates much higher. Bangladesh's location near India,
plus southeast Asia, also makes it a potentially important regional energy
trading hub.

Note: information contained in
this report is the best available as of January 2001 and can change.

GENERAL
BACKGROUND
Bangladesh has received more than $30 billion in disbursed grant aid and loans
from foreign donors (including the World Bank, the Asian Development Bank, the
U.N. Development Program, the United States, Japan, Saudi Arabia, and Western
Europe) since its independence in 1971, but remains one of the poorest and most
densely populated countries in the world. Bangladesh historically has run a
large trade deficit, which it finances largely through foreign aid and
remittances from the many Bangladeshi workers abroad (largely in the Arabian
Gulf region). Overall, foreign aid provides Bangladesh with around 40% of
government revenues and 50% of foreign exchange. In April 2000, donors meeting
in Paris agreed to provide Bangladesh $1.8-$2.2 billion in additional aid over
the next 20 years, dependent upon the pace of economic, political, and civil
reforms, which the World Bank believes will help boost Bangladesh's economic
growth rate. The World Trade Organization (WTO) has stated that Bangladesh's
main problems include civil unrest and political instability, natural disasters,
and inadequate infrastructure.

Bangladesh is primarily
agricultural (around 64% of the labor force and 26% of the Gross Domestic
Product -- GDP), although urbanization is proceeding rapidly. This heavy
reliance on agriculture makes Bangladesh vulnerable to natural disasters such as
cyclones, floods, and droughts, as well as to world commodity prices. Over the
past several years, however, Bangladesh has experienced bumper crops and strong
growth in the agricultural sector.

Bangladesh has moved increasingly
towards a market-oriented economy since the mid-1970s, although the majority of
enterprises remain under state control. The government of Prime Minister Sheikh
Hasina, elected in June 1996 (for a 5-year term), has indicated that it will
continue along a path towards privatization and free market reforms, although
progress remains slow for a variety of reasons, including a large budget deficit
(around 6% of GDP) and political turmoil. Bangladesh is attempting to diversify
its economy away from agriculture, and has made industrial development a
priority. Exports are increasing at around 8% annually, in part due to
devaluation of the country's currency, the Taka. Currently, cotton textiles and
garments account for around 80% of Bangladeshi exports.

Bangladesh is attempting to
attract foreign investment, and has established export processing zones (EPZs)
in Chittagong (the country's major port) and Dhaka (the capital), with plans for
more such zones. Most investment is coming in the natural gas, electricity, and
physical infrastructure areas. In June 2000, the official Bangladeshi news
agency, BBS, reported that the country's energy sector had attracted $1 billion
in foreign investment over the past few years, although other reports have
painted the foreign investment picture in Bangladesh in less positive terms.

Bangladesh's real GDP grew at an
estimated 5.3% rate in 2000, roughly unchanged from 5.2% growth in 1999. On the
positive side, the Bangladeshi economy was relatively unaffected by the Asian
economic crisis, in part because Bangladesh has no short-term loans to pay. In
July and August 1998, nearly 1,000 people were killed in the country's worst
flooding in more than a decade. The flood also resulted in large-scale economic
disruption, although Bangladesh received hundreds of millions of dollars in
international food assistance for the millions of people who lost crops or homes
in the flooding.

On June 23, 1998, Bangladesh
opened the $700-million Bangabandhu bridge over the Jamuna River. The bridge
connects northwestern Bangladesh to the capital, Dhaka, and will save an
estimated $40 million in annual fuel costs. The bridge also is part of a project
to supply electricity and natural gas to northwestern Bangladesh, home to 40% of
the nation's population. Currently, that region relies heavily on firewood for
fuel, although it does contain some electricity generation facilities. In
addition, a gas pipeline through the bridge will be the first to connect eastern
Bangladesh to the west.

In March 2000, President Clinton
made the first visit ever by a US President to Bangladesh since its creation in
1971. Among other things, President Clinton offered a multi-million dollar aid
package, including money for clean energy projects, energy efficiency, rural
electrification, rain forest protection, and greenhouse gas reduction efforts.

Bangladesh (along with Bhutan,
India, Maldives, Nepal, Pakistan and Sri Lanka) is a member of the South Asian
Association for Regional Cooperation (SAARC), created in 1985 to help promote
regional economic cooperation, plus economic and social development in general
in the South Asian region. SAARC met in November 2000 to discuss a timetable for
regional trade agreements.

ENERGY
Bangladesh has small reserves of oil and coal, but potentially very large
natural gas resources. Commercial energy consumption is around 69% gas, with the
remainder almost entirely oil (plus limited amounts of hydropower and coal).
Only around 18% of the population (25% in urban areas and 10% in rural areas)
has access to electricity, and per capita commercial energy consumption is among
the lowest in the world. Noncommercial energy sources, such as wood, animal
wastes, and crop residues, are estimated to account for over half of the
country's energy consumption. Consumption of wood for fuel has contributed to
deforestation and other environmental problems in Bangladesh. The World Bank has
estimated that Bangladesh loses around $1 billion per year due to power outages
and unreliable energy supplies.

In December 1998, U.S. Energy
Secretary Bill Richardson and Bangladeshi Energy and Mineral Resources Secretary
Dr. Tawfiq-e-Elahi Chowdhury B.B. signed an agreement to help support the
development of clean energy and contribute to Bangladesh's economic growth.
According to Secretary Richardson, the United States and Bangladesh agreed
"to work together to spur investment and create market opportunities for
clean natural gas and other environmentally responsible energy sources."
Richardson also stated that "cooperation on these key resources has the
potential to improve the overall energy infrastructure, foster market-based
policies and strengthen the regional economy."

Bangladesh's Ministry of Energy
and Mineral Resources (MEMR) has overall responsibility for the country's energy
sector, with policy formulation and investment decisions under its control.
Within MEMR, the "Power Cell" acts as a single point of contact to
facilitate the electricity reform and restructuring process, such as development
of Independent Power Projects (IPPs).

Bangladesh contains small proven oil reserves of 56.9 million barrels and
produces around 1,600 barrels per day (bbl/d), of which 1,400 bbl/d is crude
oil. Until the beginning of the 1990s, state oil and gas company Petrobangla,
along with its eight operating companies (OCs), was the sole player in the
Bangladeshi oil and gas sectors. Over the past few years, however, Bangladesh
has encouraged foreign oil companies to do business in the country. At present,
Shell, Texaco, Scotland's Cairn Energy PLC; Holland Sea Search, Unocal,
Rexwood-Okland, and UMC Bangladesh Corporation are active in exploration under
six Production Sharing Contracts (PSCs) partnership with Petrobangla. To date,
oil exploration has proven largely unsuccessful, although hopes continue,
especially onshore. In August 2000, Shell confirmed that it and Cairn Energy
were planning to survey the possibly hydrocarbon-rich Sunderbans area, home to
the world's largest tiger reserve. Petrobangla regulates the activities of
foreign companies under PSCs, and serves as the sole purchaser of oil and gas
from the companies. Around 65% of Petrobangla's gross revenues are paid to the
State in the form of taxes and compulsory dividends. Petrobangla has been
characterized in recent years by a low level of investments and a lack of
sufficient financing.

Refining/Downstream
Bangladesh has 1 refinery, a 33,000-bbl/d unit at Chittagong. In December 2000,
TotalFinaElf said that it would set up a $16-million plant to bottle liquefied
petroleum gas (LPG), in a joint venture with Bangladesh's Premier LP Gas Ltd.
LPG is used in Bangladesh mainly for domestic cooking, as well as in some
industries and vehicles.

In July 1999, Bangladesh decided to
remove lead from gasoline sold in the country. The decision was taken mainly due
to health and environmental concerns, particularly in Dhaka, the capital. In
August 2000, the Bangladesh Petroleum Corp. announced that it would increase
domestic fuel prices by up to 20%, largely in reaction to high world oil prices.

Natural gas is Bangladesh's only significant source of commercial energy, with
1999 production of 319.6 billion cubic feet (Bcf). Bangladeshi gas production
began in 1960 from the Chattak Field. According to the Oil and Gas Journal,
Bangladesh currently has estimated proved natural gas reserves of around 11
trillion cubic feet (Tcf) in approximately 20 fields (mainly onshore). The US
Geological Survey, however, said in a recent report that undiscovered gas
reserves might be as high as 33.5 Tcf (two-thirds in the western and central
regions, and one-third in the eastern region), enough to make Bangladesh a major
gas producer (as well as supplier to the vast potential market in neighboring
India) at some point. Bangladesh also could use its gas resources to power
vehicles (the government already has announced plans to convert government
vehicles to compressed natural gas to help alleviate pollution problems in
Dhaka, and also in response to high oil prices), to produce electricity,
petrochemicals, and fertilizers, which it also could use both within the country
as well as for export. Gas exports are controversial within Bangladesh, with
many people feeling that Bangladeshi gas resources first should be used for
domestic purposes (i.e., electric power generation, fertilizer production,
transportation), and also that the size of the country's gas reserves remains
highly uncertain, particularly in relation to future domestic demand
projections. Both major political parties are officially committed to
considering gas exports only if Bangladesh has proven reserves sufficient to
cover 50 years of domestic demand. A final decision on possible Bangladeshi gas
exports is not expected until sometime after the next general election, in 2001.

Petrobangla has approximately 20
gas fields nationwide, half of which are active. The main fields include:
Bibiyana (recently discovered by Unocal in Sylhet on Block 12, with 5-6 Tcf of
reserves, and production potential of 500-750 million cubic feet per day within
a few years), Titas (the country's second largest gas field, with 4.1 Tcf of
reserves), Habiganj (3.7 Tcf of reserves), Kailashtilla (3.7 Tcf), Rashidpur
(2.2 Tcf), Jalalabad (1.5 Tcf), Sangu (1.0 Tcf), nearly all of which are located
in the eastern part of the country, plus the Sangu offshore gas field (being
developed by Cairn Energy, Shell, and Halliburton) in Block 16 of the Bay of
Bengal, 30 miles southwest of Chittagong. Production from Sangu, Bangladesh's
first offshore field (with estimated reserves of around 850 Bcf), began in June
1998. Sangu is one of Bangladesh's most important gas discoveries to date, and
the first foreign-run gas field. In January 2000, Shell Bangladesh Exploration
and Development -- SBED -- along with partners Cairn Energy and HBR Energy
reportedly discovered a new gas field near Sangu (South Sangu-1). In August
2000, SBED announced that it had invested $40-$50 million in new offshore gas
exploration projects in Bangladesh, including the Sandwip East 1 well in Block
15 (Bay of Bengal). Other possible gas fields include Shaldanadi (estimated
reserves of 500-1,000 Bcf), Fenchuganj, Feni, Kumta, and Shahbajpur.

Major foreign energy companies
active in gas exploration and development in Bangladesh include Shell, and
Unocal, which operates in Bangladesh through its wholly owned subsidiary, Unocal
Bangladesh, Ltd. In May 1999, Unocal took over the assets and operations in
Bangladesh of Occidental, which had experienced a major explosion and fire at
one of its wells in the Sylhet area in 1997. As of June 2000, it appeared that
Irish oil and gas exploration and production company Tullow Oil PLC, along with
Chevron, had been awarded rights to drill in Block 9 in the northeast Sylhet
region. Since then, negotiations have started for PSCs with only two companies,
however. Among companies placing bids since the country's second oil and gas
licensing round began in 1997 are Cairn and Royal-Dutch Shell on Block 5, and
Unocal on Block 7 (in April 2000, Bangladesh signed a PSC with Unocal on Block
7). As of May 2000, Cairn and Shell reportedly were in talks with Unocal on
joining forces to develop Blocks 5, 7, and 10. In December 1999, Unocal
announced a major gas discovery at the Moulvi Bazar gas field in the Sylhet
area, in Block 14. Meanwhile, Tullow's plans for Blocks 17 and 18 reportedly
have been set back by disappointing results at the Reju-1 exploratory well.

Besides foreign energy companies,
natural gas in Bangladesh is being produced by two subsidiaries of state energy
company Petrobangla -- Sylhet Gas Fields Ltd. and Bangladesh Gas Fields Co. Ltd.
These two companies produce gas for domestic consumption. More than 80% of gas
is consumed for power and fertilizer production, and the remainder by industry
and households.

Bangladesh's gas demand is expected
by some independent analysts to grow by around 6% annually over the next two
decades. Potential uses for natural gas in Bangladesh include: petrochemicals,
compressed gas for vehicles, power generation, fertilizer, and possibly
liquefied natural gas (for export). Bangladesh also contains around 55 million
barrels of natural gas liquids (NGLs), which could be used for petrochemicals
production or as a cooking fuel to help reduce deforestation and pollution.

A $1-billion Western Region
Integrated Project (WRIP) would involve development of the Shahbazpur gas field
in Bhola, installation of a 93-mile pipeline to Khulna, and construction of
several gas-fired power plants (at Gopalganj, Bhola, Barisal, and Khulna) to
serve western Bangladesh. Shahbazpur, discovered by Petrobangla subsidiary Bapex
(Bangladesh Petroleum Exploration Company) in 1995, is estimated to contain
330-400 Bcf of recoverable gas. In September 1998, Unocal and Petrobangla
initialed a PSC for development of Shahbazpur. Unocal has proposed an
integrated, $250-million energy project centered around Shahbazpur, and
including a gas pipeline system to serve western Bangladesh, gas-fired power to
be built in Bhola, Barisal, and Khulna, and possibly fertilizer and cement
plants. Currently, the Bangladeshi gas transmission system experiences
bottlenecks and requires expansion to accommodate future supply increases.

In July 1998, Cairn Energy
reportedly made a large gas discovery in the Halda valley. Meanwhile, Unocal,
along with Petrobangla, is developing the 1.6-Tcf Jalalabad gas field. Output at
Jalalabad (Block 13) began on March 22, 1999 at a rate of 100 million cubic feet
per day -- Mmcf/d. In early 1997, Unocal acquired 50% interest in Occidental
blocks 12, 13, and 14. Unocal also is involved in two PSCs with Petrobangla
covering Blocks 12, 13, and 14. In 1998, Occidental-Unocal discovered an
estimated 4.-5 Tcf of gas-in-place on Block 12. In late September 1998, Shell
and Cairn said they had agreed to an alliance over gas development in Bangladesh
(including the Sangu and Semutang fields), plus northeastern India.

In late November 1998, Bangladesh
raised the price of gas by 15% as part of an effort to reduce government
subsidies as recommended by international lending institutions and countries.
Bangladesh has had relatively low gas prices by international standards, with
electricity consumers, plus fertilizer plants and households, receiving around
$600 million a year in direct subsidies and savings associated with their gas
consumption.

Bangladesh's installed electric generating capacity in 1997 was 3.3 gigawatts (GW),
of which around 93% was thermal (mainly natural-gas-fired), and the remainder
hydroelectric, at 18 power stations. Only around 2.4 GW of Bangladesh's total
electric generating capacity is considered to be "available," however.
Problems in the Bangladeshi electric power sector include high system losses (up
to 40%), delays in completion of new plants, low plant efficiencies, gas
availability problems, erratic power supply, electricity theft (the government
announced a crackdown on this in May 1999), and blackouts (such as the
nationwide blackout in June 1998), shortages of funds for needed maintenance at
the country's 19 power plants and other power infrastructure, and unwillingness
of customers to pay bills. Overall, the country's generation plants have been
chronically unable to meet system demand over the past decade. With only around
18% of the population connected to the electricity grid, and with power demand
growing rapidly (10% annually from 1974-1994; 7% annually from 1995-1997),
Bangladesh's Power System Master Plan (PSMP) projects a required doubling of
electric generating capacity by 2010. Total investment required for this
increased capacity is estimated at $4.4 billion through 2005. In addition,
Bangladesh also may need to replace 30%-40% of current generating capacity. In
May 1999, Prime Minister Hasina said that her government had given top priority
to maximizing the country's power generating capacity in the shortest timeframe
possible. Germany and Japan have promised $80 million to help in this effort,
and other countries may provide aid as well. Bangladesh also plans a
conservation program to save around 200 megawatts (MW) of power.

The Padma-Jamuna-Meghna river
system divides Bangladesh into two zones, East and West. The East contains
nearly all of the country's electric generating capacity, while the West, with
almost no natural resources, must import power from the East. Electricity
interconnection from the East to the West was accomplished in 1982 by a new,
230-kV power line. The vast majority of Bangladesh's electricity consumption
takes place in the East, with the entire region west of the Jamuna River
accounting for only 22% of the total. Greater Dhaka alone consumes around half
of Bangladeshi electricity.

Given Bangladesh's electricity
supply shortage, the government decided in October 1996 to issue a "Private
Sector Power Generation Policy of Bangladesh." As part of this plan (and
also following the Power Systems Master Plan developed by Acres International
Ltd. in 1995), the government decided to solicit proposals from international
companies for IPPs. This has resulted in solicitations for a number of
fast-track barge-mounted plants, plus two large-capacity gas-fired,
combined-cycle plants (a 360-MW plant at Haripur and a 450-MW plant at
Meghnaghat), and a 100-MW gas-fired plant at Baghabari. These plants are
scheduled for commissioning in 2001. The Meghnaghat plant would be Bangladesh's
largest single power plant built by a private developer (AES Corporation of
Arlington, Virginia), and would be developed on a build-own-operate basis for
$280-$300 million. Other plants presently under construction include a 210-MW
plant at Ghorasal and a similar plant at Siddirganj. Also planned is
rehabilitation of the 110-MW Khulna steam plant (during 1999), the 60-MW
Shajibaza combustion turbine plant (during 2000), the Barapukaria Coal power
plant (in 2001), and the Haripur combustion turbine conversion to combined cycle
(in 2002). Meanwhile, in April 1998, Bangladesh adopted a "Small Power
Generation Policy," and the country also has an aggressive Rural
Electrification program. All of these initiatives aim to increase power
generation and to reduce the country's power shortage significantly in coming
years, with a goal of achieving universal electrification by 2020. Power
shortages can have serious social consequences, as demonstrated on April 10,
1999, when violent clashes took place in Dhaka between police and people
protesting inadequate power supplies and demanding better service.

Through MEMR, the Bangladeshi
government owns and supervises the Bangladesh Power Development Board (BPDB).
BPDB is an integrated utility distributing electricity directly to retail
consumers, as well as to two other distribution utilities -- the Dhaka Electric
Supply Authority (DESA, established in 1991), and the Rural Electrification
Board (REB, established in 1977). The Asian Development Bank (ADB) has agreed to
provide $140 million to upgrade DESA's power supply system in Dhaka, and to
construct a 450-MW power plant in Dhaka. This is to be the first competitively
bid and privately-funded power project in Bangladesh, and will consist of a
combined-cycle, gas-fired station to be built and run by AES Corporation, with
commercial operation scheduled for 2003. A Chinese company also reportedly has
agreed to provide DESA with $60 million in credits for the Dhaka power
distribution upgrade. In October 2000, the US Export-Import Bank approved $8
million in loans to build three, 11-MW power plants in Bangladesh.

Bangladesh has several
barge-mounted power stations under construction. The 120-MW Haripur Cogeneration
plant has been delayed, while Westont Power's 130-MW, $37-million Baghabari
project began delivering power to BPDB in July 1999. A $103-million, 110-MW,
fuel-oil-fired power plant at Khulna, built on two barges, was commissioned in
October 1998 and is being operated by Wartsila NSD of Finland in a joint venture
with two local companies (plus financing from the International
Finance Corporation).
Power from the plant supplies western Bangladesh.

Occidental, in cooperation with
the Indian National Thermal Power Corp., has proposed building a new 1,000-MW
gas-fired power plant (with possible expansion up to 2,000 MW), to be supplied
from the Bibiyana gas field located in the Sylhet region of northeastern
Bangladesh. Occidental believes that Bibiyana could supply enough gas for a
2,000-MW plant for 20 years. Meanwhile, two power plants in the port city of
Chittagong are to be supplied from the Sangu gas field in the Bay of Bengal.

In another development, AES Corp.
has agreed to build the 450-MW Meghnaghat gas-fired plant for the BPDB. The
plant is to be built on the Meghna River, about 3 miles from the 360-MW Haripur
plant which AES also is developing. Completion of the Meghnaghat plant is
expected in 2000, and power is to be sold to BPDB under a 22-year power purchase
agreement.

In early December 1998, Prime
Minister Hasina announced that discussions were underway among Southern Asian (SAARC)
nations for development of a regional electricity grid. Such a grid could lead
to increased efficiencies and reduced power generation and transmission costs.
Nepal and Bhutan have substantial untapped hydroelectricity potential. This
power could be consumed in those two countries and also exported to India,
Pakistan, and Bangladesh. In March 1999, it was reported that India's Power Grid
Corporation had completed a feasibility study on possible exchange of 150 MW of
power between Bangladesh and India. Interconnection points would be Ishwardi,
Bangladesh-Farakka, India and Shahjibazar, Bangladesh-Kurnarghat, India.

In November 2000, the United
States and Bangladesh signed an agreement for cooperation on the peaceful use of
nuclear power. Under the agreement, Bangladesh is to receive technical
assistance for its planned Rooppur nuclear plant. Bangladesh is a signatory to
the Nuclear Non-Proliferation Treaty, and ratified the Comprehensive Test Ban
Treaty in March 2000.

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